By SHARON UDASIN
01/10/2016
Aiming to convey 5 billion cubic meters of gas from Israel to Egypt, the deal calls for employing the now defunct East Mediterranean Gas company pipeline.
Three weeks after National Infrastructure, Energy and Water Minister Yuval Steinitz granted his approval for the first deal to export gas from Israel to Egypt, the company whose infrastructure is critical to its realization stressed that it is not party to any such transaction.

The agreement in question involves a 7-year contract signed between Israel’s Tamar reservoir partners and Egypt’s Dolphinus Holdings Limited in March. Aiming to convey 5 billion cubic meters of gas from Israel to Egypt, the deal calls for employing the now defunct East Mediterranean Gas company pipeline, which used to bring gas in the opposite direction, from Egypt to Israel.

In mid-November, the partners in the neighboring Leviathan reservoir signed a letter of intent with Dolphinus as well, to negotiate the export of as much as 4 billion cubic meters of gas annually for 10-15 years, through the EMG pipeline. EMG has repeatedly denied its involvement in or recognition of either arrangement.

“EMG finds it appropriate to inform you that it is not a party to those reported transactions… and was not included in any negotiations leading to such agreements,” Niv Sever, a partner at the Ramat Gan-based M. Firon & Co., and representative of EMG, wrote in a letter to Steinitz on Sunday.

“Furthermore, no discussions are currently being held between EMG, Dolphinus and/or any of the Tamar partners or of the Leviathan partners regarding such transactions and no such negotiations have been held in the past,” Sever added.

In addition to the fact that EMG continues to reject the agreement between the Tamar partners and Dolphinus, the gas export arrangement also still may face some hurdles within the Egyptian government.

In 2008, two Egyptian national gas companies began selling gas to the Israel Electric Corporation, through the EMG pipeline – supplying the country with about 40 percent of its natural gas provisions. Yet saboteurs began thwarting the flow through Sinai pipeline explosions in 2011, which ultimately led the Egyptian government to terminate the gas sale agreement with Israel in April 2012.

In early December, the International Chamber of Commerce awarded the IEC $1.76 billion in compensation from the Egyptian national gas firms, prompting the Egyptian government to declare a freeze in gas import talks with Israel. In the same arbitration agreement, EMG was likewise awarded $324m. from the same two Egyptian national gas firms – the Egyptian Natural Gas Holding Company (EGAS) and the Egyptian General Petroleum Corporation (EGPC).

On Sunday, in his letter to Steinitz, Sever stressed that “there are various legal, regulatory and administrative obstacles that preclude the use of EMG’s pipeline system in the way that the license you have issue appears to contemplate.”

One such issue that Sever presented is the fact that import of gas and its utilization in the Egyptian national grid requires the approval of the two national gas companies, EGAS and EGPC. The companies, however, have yet to publish regulations regarding conditions for such import, and press reports have said that such conditions will be subject to the settlement of all gas-related arbitrations, according to Sever.

The attorney also pointed out that Israeli law does not currently permit EMG to use its system to export gas from Israel to Egypt.

“Of greater concern is the fact that at least one of the agreements entered into between the gas producer (the Tamar partners) and Dolphinus may be illegal, as well as in direct contradiction of the interests of both EMG and Egypt,” Sever wrote.

By importing gas from the Tamar partnership, a declared monopoly, Dolphinus would be entering into a restrictive trade practice, in which the Tamar shareholders would gain the exclusive right to export gas to Egypt through EMG’s pipeline, Sever argued. Such an arrangement could also negatively impact competition and pricing in the Israeli gas sector, as the Tamar partnership would be granting an exclusive right for gas purchase to a single buyer, Dolphinus, the attorney added.

“My client has no intention of being a party to any such illegal activity and is greatly distressed that it has been portrayed as a potential party to such a transaction, against its wishes, and without its prior knowledge or consent,” he wrote.

Although Sever described the currently discussed transactions as “void of real content” and contrary to the interests of Israel, Egypt and EMG, he said that the company would welcome an opportunity to be part of a gas supply agreement if such an opportunity would truly become feasible.

“However, in such a scenario, EMG fails to see why it would either need the use of any intermediary between itself and any of the Israeli gas producers, or why it should limit the use of its pipeline to a specific third party, such as Dolphinus,” he wrote. “It should be clear that any decision by EMG to use its pipeline will be made for the benefit of EMG and its shareholders and stakeholders on its own terms and conditions that protect those interests.”

In response to the letter, a statement from the National Infrastructure, Energy and Water Ministry reiterated that the authorization granted at the end of December applied specifically to the request of the Tamar partners.

“Following the export approval, it is the responsibility of those requesting the authorization, the companies, to take it upon themselves to realize the signing of export agreements,” the statement said.